Loans to get costlier as RBI hikes repo rate again

Lloyd Doyle
August 1, 2018

The Monetary Policy Committee of the Reserve Bank of India on Wednesday made a decision to increase the repo rate by 25 basis points to 6.5 per cent, as it remained concerned about rising inflation.

An RBI repo rate hike usually sees commercial banks hike their respective interest rates on home, auto and other loans.

Two reasons were stated by economists for the RBI to increase the rates - one, core inflation, which is the non-food, non-oil inflation, quickened to 6.4 percent in June and the second, is the government decision on increasing the minimum support price (MSP) for kharif crops to support farmers. For the July-September quarter, RBI pegged CPI-based retail inflation at 4.2 per cent which it sees firming up further to 4.8 per cent in the second half of the current fiscal.

The repo rate has been hiked from 6.25 per cent to 6.5 per cent.

Mumbai: The Reserve Bank of India is likely to raise interest rates on Wednesday while retaining a neutral policy stance as it aims to strike a balance between rising inflationary pressures and still recovering growth. For instance, every time the RBI lowers repo rate, banks are typically expected to pass on the benefit to retail customers. As per reports, the hike of interest rates n June was a benchmark lending rate in past four years.

The repo rate is the rate at which the RBI lends short-term money to the banks.

Five of the six members on the rate panel voted for a rate increase.

The August move came after India's annual consumer inflation hit 5 per cent in June, the eighth straight month it topped the RBI's medium-term 4 per cent target.

"RBI's Monetary Policy Committee has chose to increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.5% Consequently, the reverse repo rate under the LAF stands adjusted to 6.25% and marginal standing facility rate and Bank Rate to 6.75%", the apex bank said in a statement.

The next meeting of the MPC is scheduled from October 3 to 5, 2018.

Other reports by Iphone Fresh

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